Question 1

On January 1, 2010, Betty's Produce Market leased some equipment from another company.The lease contract calls for $22, 000 payments for eight years, beginning on December 31, 2010.
Required:
Calculate the present value of the lease payments on January 1, 2010.Assume a 6% interest rate.

Accepted Answer

The answer of On January 1, 2010, Betty's Produce Market...

Question 2

A beginning accounting student has just been introduced to present and future values analysis and has been told that it is based on compound interest, not simple interest.The student is confused about the differences between the two interest methods.
Required:
Explain the difference between the two methods using a single deposit of $1, 000 for two years at 10% interest.

Accepted Answer

The answer of A beginning accounting student has just been...

Question 3

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook.Discuss the ways these three annuities are similar and dissimilar.

Accepted Answer

The answer of The present values of ordinary annuities, annuities...

Question 4

Compound interest factors are provided below:
 $\begin{array}{lrrrr}&35 \%, n=10&5 \%, n=20&10 \%, n=10&10 \%, n=20\\hline
\text { Future value of a lump sum } & 1.629 & 2.653 & 2.594 & 6.728 \
\text { Future value of an ordinary amuity } & 12.578 & 33.067 & 15.937 & 57.275 \
\text { Present value of a lump sum } & .614 & .377 & .386 & 149 \
\text { Present value of an ordinary amuity } & 7.722 & 12.462 & 6.145 & 8.514 \
\text { Present value of an anmuity due } & 8.108 & 13.089 & 6.759 & 9.365
\end{array}$ Required:
Using the above factors, answer each of the following questions.

Accepted Answer

The answer of Compound interest factors are provided below:
 \(\begin{array}{lrrrr}&35...

Question 5

Although most accountants believe that the use of present value creates relevant accounting measurements, there are some reliability questions.Discuss the reasons why present value computations create less reliable measurements.

Accepted Answer

The answer of Although most accountants believe that the use...

Question 6

Grandpa Brown has agreed to deposit a lump sum into an account that pays 12% interest compounded annually in order to pay for his granddaughter's college education.The granddaughter estimated that she will need to withdraw $40, 000 at the beginning of each year for four years to pay for room, board, tuition, and books.Grandpa will deposit the lump sum on August 1, 2010, and the granddaughter will make the first withdrawal on September 1, 2016.
Required:
Determine the amount that Grandpa Brown must deposit.Clearly label all work.

Accepted Answer

The answer of Grandpa Brown has agreed to deposit a...

Question 7

On January 1, 2010, Steelton Company completed arrangements to purchase a new piece of equipment.The agreement calls for equal annual payments on January 1 of each year for six years.The first payment of $7, 500 is to be made on January 1, 2010.The implied interest rate is 12%.
Required:
Calculate the cost of the equipment to Steelton Company.

Accepted Answer

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Question 8

Match the diagrams with the concepts by writing the identifying letter of the diagram on the blank line to the left of the concept."VAL" represents the value to be calculated.
 $\text { Diagram of Concept }$
A.
B.
C.
D.
E.
F. $\begin{array}{lll}&&\text { Concept }\
\_\_\_&1.&\text {Future value of $ \$ 1 $ }\
\_\_\_&2.&\text { Present value of $ \$ 1 $}\
\_\_\_&3.&\text {Future value of an anmuity due of $ \$ 1 $ }\
\_\_\_&4.&\text {Future value of an ordinary amuity of $ \$ 1 $ }\
\_\_\_&5.&\text {Present value of an ordinary anmuity of $ \$ $ }\
\_\_\_&6.&\text { Present value of an amurity clue of $ \$ 1 $}\
\end{array}$

Accepted Answer

The answer of Match the diagrams with the concepts by...

Question 9

The FASB concepts statement relating to cash flow information introduces the concept of expected cash flows when using present values for accounting measurements.Assume that the Smith Company determined that it has a 40% probability of receiving $10, 000 in one year but a 60% probability of receiving $10, 000 two years from now.
Required:
Using the FASB concepts, calculate the present value of the cash flows assuming a 12% interest rate compounded annually.

Accepted Answer

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Question 10

Maggie Company estimated that it has a 20% probability of receiving $240, 000 one year from now, a 30% probability of receiving $240, 000 two years from now, and a 50% probability of receiving $240, 000 three years from now.
Required:
Using the FASB's concept of "expected cash flows, " calculate the present value of the cash flows assuming a 10% interest rate compounded annually.

Accepted Answer

The answer of Maggie Company estimated that it has a...

Question 11

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?"
Required:
Explain the two concepts and how they are related.

Accepted Answer

The answer of A beginning accounting student comes to you...

Question 12

An accounting student has just been introduced to present value analysis and comes to you with the following question, "How is present value used in the financial statements?"
Required:
Give the student examples of financial statement accounts that are stated at present value and explain the advantages of using present value for certain financial statement items.

Accepted Answer

The answer of An accounting student has just been introduced...

Quiz 24: Time Value of Money Module

On January 1, 2010, Betty's Produce Market leased some equipment from another company.The lease contract calls for $22, 000 payments for eight years, beginning on December 31, 2010. Required: Calculate the present value of the lease payments on January 1, 2010.Assume a 6% interest rate.

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook.Discuss the ways these three annuities are similar and dissimilar.

Although most accountants believe that the use of present value creates relevant accounting measurements, there are some reliability questions.Discuss the reasons why present value computations create less reliable measurements.

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?" Required: Explain the two concepts and how they are related.